Insurers in Canada are required to implement a system of
enterprise-wide risk management that identifies the inherent risks
in their activities and manages those risks to appropriately
defined levels. Regulatory reforms that address risk management of
insurers and other financial institutions have dominated the
landscape in Canada over the past few years. Recent initiatives put
into place by Canada's federal insurance regulator include:
a revised guideline on corporate governance;
a revised guideline on regulatory compliance
a new guideline on own risk and solvency assessment;
and a new guideline on operational risk management.
Revised guideline on corporate governance
The revised guideline on corporate governance requires, among
a board-approved risk appetite framework;
hands-on involvement by senior managers in risk management
policies and practices and dedicated board oversight;
in appropriate circumstances, the
establishment of a dedicated risk committee; and
the appointment of a chief risk
officer with unfettered access and a functional reporting line
directly to the board or risk committee.
The corporate governance guideline applies to domestic insurers
only because significant responsibility is placed on the board of
directors as the ultimate oversight function. Branch operations do
not have local boards of directors.
Revised guideline on regulatory compliance management
The guideline on regulatory compliance management is a revision
of the prior guideline on legislative compliance management and
communicates the regulator's expectations with respect to the
management of regulatory compliance risk by insurers. The guideline
makes the board of directors – or chief agent, in the case of
a branch operation of a foreign company – ultimately
responsible for effective enterprise-wide regulatory compliance
management and mandates a chief compliance officer. Internal audit
(or another independent review function) is required to validate
the effectiveness of, and adherence to, the insurer's
compliance framework through regular risk-based testing.
New guideline on own risk and solvency assessment
The new guideline on own risk and solvency assessment (ORSA)
outlines the regulator's expectations with respect to the
insurer's own assessment of its risks, capital needs and
solvency position, and the setting of internal targets based on the
insurer's ORSA. The ORSA guideline also addresses:
the scope of the ORSA;
its relation to enterprise risk management;
the role of the board, senior management and other participants
in performing, monitoring, reporting or reviewing the
other key elements of the assessment process.
New guideline on operational risk management
The new guideline on operational risk management is designed to
complement the above noted guidance in order to round out an
insurer's overall risk management systems and culture. The
Office of the Superintendent of Financial Institutions (OSFI)
expects each insurer to implement policies and procedures for
operational risk management as part of its enterprise-wide,
board-approved risk appetite framework. OSFI recommends that an
insurer's methodology of operational risk management should
follow the 'three lines of defence' model for establishing
and independently assessing the insurer's processes:
the business line, which plans, directs and controls day-to-day
an oversight function (eg, compliance and/or legal);
an independent review and assessment by internal audit.
Similar to the corporate governance guideline, the guideline on
operational risk management applies only to domestically
Originally published by International Law
The foregoing provides only an overview and does not
constitute legal advice. Readers are cautioned against making any
decisions based on this material alone. Rather, specific legal
advice should be obtained.
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